MEMO TO:
Alexsei Demo US
RESEARCH ID:
#4000656534807a
JURISDICTION:
Federal
STATE/FORUM:
California, United States of America
ANSWERED ON:
March 21, 2022
CLASSIFICATION:
Intellectual property

Issue:

Are California cannabis products subject to federal trademark infringement claims?

Facts:

A California company produces an edible cannabis product that contains THC. The company is properly licensed under California's cannabis laws. The company's candies look similar to a famous candy brand and have a name that plays on the famous candy brand's name. The company is concerned that the famous candy brand will sue them for trademark infringement.

Conclusion:

Courts in the Ninth Circuit have applied federal trademark law to cases where the plaintiff alleged that the defendant's cannabis products infringed on their trademark. (Kiva Health Brands LLC v. Kiva Brands Inc., Ferrara Candy Co. v. Tops Cannabis, Tapatio Foods, LLC v. Ponce, Lochirco Fruit & Produce Co. v. Tarukino Holdings, Inc.)

To prevail on a claim of trademark infringement, a plaintiff must show ownership of a valid mark and use by the defendant in commerce of a mark likely to cause consumer confusion. (Kiva Health Brands LLC v. Kiva Brands Inc.)

Courts in the Ninth Circuit analyze the likelihood of confusion by looking at eight factors: (1) the strength of the mark; (2) the similarity of the marks; (3) the proximity of the goods sold; (4) the similarity in the marketing channels used; (5) the type of goods/services and the degree of care likely to be exercised by purchasers; (6) the evidence of actual confusion; (7) the defendant's intent in selecting its mark; and (8) the likelihood of expansion into other markets. (Kiva Health Brands LLC v. Kiva Brands Inc.)

The illegality of cannabis products under federal law precludes a producer of cannabis products who is being sued for trademark infringement from challenging a plaintiff's federally registered trademark that is not associated with cannabis products. (Kiva Health Brands LLC v. Kiva Brands Inc.)

A federally-registered mark for cannabis products is likely to be found invalid because the products are illegal under federal law, thus, where the cannabis company is the plaintiff in a trademark infringement claim, lawful use in commerce cannot be established. (Wunderwerks, Inc. v. Dual Beverage Co.)

In Kiva Health Brands LLC v. Kiva Brands Inc., the United States District Court for the Northern District of California denied the plaintiff's request for a preliminary injunction after finding that the plaintiff failed to demonstrate a likelihood of success on the merits, did not show substantial evidence of irreparable harm, and the balance of equities favored denying the injunction. The Court found that while the plaintiff's mark was conceptually strong and the defendant's mark was similar, the differences in the goods sold and the marketing channels used meant that there was not a significant likelihood of consumer confusion.

On the converse, in the unreported decision of Tapatio Foods, LLC v. Ponce the United States District Court for the Central District of California granted the plaintiff's motion for a default judgment after finding that the plaintiff stated a viable trademark infringement claim and was entitled to injunctive relief. The name of the defendant's hot sauce, which contained THC, was similar to the plaintiff's and the font and image on the label of the defendant's hot sauce were similar to the font and image used on the plaintiff's products.

Law:

In Kiva Health Brands LLC v. Kiva Brands Inc., 402 F.Supp.3d 877 (N.D. Cal. 2019), the plaintiff sought a preliminary injunction against the defendant, a maker of cannabis-infused chocolate and other "edibles" for trademark infringement. The United States District Court for the Northern District of California explained that to prevail on a claim of trademark infringement, a plaintiff must show ownership of a valid mark and use by the defendant in commerce of a mark likely to cause consumer confusion. Courts in the Ninth Circuit analyzing the likelihood of confusion look to eight factors: (1) the strength of the mark; (2) the similarity of the marks; (3) the proximity of the goods sold; (4) the similarity in the marketing channels used; (5) the type of goods/services and the degree of care likely to be exercised by purchasers; (6) the evidence of actual confusion; (7) the defendant's intent in selecting its mark; and (8) the likelihood of expansion into other markets. The Court held that the illegality of the defendant's products under federal law made it so that the defendant was unable to challenge the plaintiff's federal trademark. Nonetheless, the Court found that while the plaintiff's mark was conceptually strong, and the defendant's mark was similar, the differences in the goods sold and the marketing channels used meant that there was not a significant likelihood of confusion. Thus, the plaintiff failed to demonstrate a likelihood of success on the merits for the purposes of its injunction (at 884, 890-891, 896): 

The first requirement for injunctive relief is a likelihood of success on the merits. See Rodriguez, 715 F.3d at 1133. To prevail on a claim of trademark infringement, a plaintiff must show (a) ownership of a valid mark and (b) use by defendant in commerce of a mark likely to cause consumer confusion. Network Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137, 1144 (9th Cir. 2011). Both prongs are in dispute here.

[...]

Although the parties have not identified, and the Court has not seen, any directly relevant authority about the interplay of state marijuana laws and federal trademark law,11 the Court is persuaded that

[402 F.Supp.3d 891]

the illegality of KBI's products under federal law renders KBI unable to challenge KHB's federal trademark. Accordingly, as of this stage in the case, KHB has demonstrated ownership of the mark nationally, including in California.

Even assuming that KHB prevails on this prong of the likelihood of success requirement, however, it has not demonstrated a likelihood of confusion.

b. Likelihood of Confusion

Likelihood of confusion exists "when consumers are likely to assume that a product or service is associated with a source other than its actual source because of similarities between the two sources' marks or marketing techniques." Int'l Jensen, Inc. v. Metrosound U.S.A., Inc., 4 F.3d 819, 825 (9th Cir. 1993) (internal quotation marks omitted). Courts in the Ninth Circuit analyzing likelihood of confusion look to the eight factors identified in AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348–49 (9th Cir. 1979), abrogated on other grounds by Mattel, Inc. v. Walking Mountain Prods., 353 F.3d 792 (9th Cir. 2003) : (i) the strength of the mark; (ii) the similarity of the marks; (iii) the proximity of the goods sold; (iv) the similarity in the marketing channels used; (v) the type of goods/services and the degree of care likely to be exercised by purchasers; (vi) the evidence of actual confusion; (vii) defendant's intent in selecting its mark; and (viii) the likelihood of expansion into other markets. These factors are mixed in this case.

[...]

All in all, although KHB's mark is at least conceptually strong, and the marks are similar, the differences in the goods sold and (likely) the marketing channels used mean that there is not a significant likelihood of confusion here. See Brookfield, 174 F.3d at 1054 ("Some factors are much more important than others, and the relative importance of each individual factor will be case-specific."). While there is some evidence of actual confusion, that evidence is not entirely reliable. The Court therefore concludes that KHB has failed to demonstrate a likelihood of confusion, and therefore also failed to demonstrate a likelihood of success on the merits (notwithstanding its probable ability to show ownership of the mark).

The second requirement for injunctive relief is that the plaintiff is likely to suffer irreparable harm in the absence of preliminary relief. Loss of goodwill and the ability to control one's mark can amount to irreparable harm, but a plaintiff must point to actual evidence on these points. In this case, the plaintiff did not show substantial evidence of irreparable harm and the Court noted that the plaintiff's delay in seeking a preliminary injunction implied a lack of urgency and irreparable harm (at 896-899): 

The second requirement for injunctive relief is that the plaintiff is likely to suffer irreparable harm in the absence of preliminary relief. See Rodriguez, 715 F.3d at 1133. Irreparable harm is no longer presumed where there is a strong case of trademark infringement. See Herb Reed Enters., 736 F.3d at 1249. Loss of goodwill and the ability to control one's mark can amount to irreparable harm, but a plaintiff must point to actual evidence on these points. See id. at 1250 ("court's pronouncements [must be] grounded in ... evidence...."); see also SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., 846 F. Supp. 2d 1063, 1083 (N.D. Cal. 2012) ("Ninth Circuit has recognized that the potential loss of good will or the loss of the ability to control one's reputation may constitute irreparable harm or purposes of preliminary injunctive relief." (citation omitted)).

a. Evidence of Harm

KHB argues that it has demonstrated the loss of "control over its business reputation" in light of "the evidence of consumer confusion." KHB MPI at 16. It adds that KBI's expansion to Hawaii and Michigan "and presumably beyond" further endangers KHB's brand. Id. But those are just references to the consumer confusion log and KBI's likelihood of expansion. Arguing that they demonstrate irreparable harm is akin to arguing that a clear-cut case of trademark infringement leads to a presumption of irreparable harm. That is not the law. See Herb Reed Enters., 736 F.3d at 1249.

The only other evidence that KHB has identified that is relevant to irreparable harm is Henderson's declaration. Henderson declared that in his "opinion," KHB "is suffering economic damage and injury to its reputation and good will, and that this damage and injury will continue as long as [KBI] sells products with the KIVA mark." Henderson Decl. ¶ 15. A conclusory and self-serving declaration by the head of a plaintiff's company is, standing alone, weak evidence of irreparable harm. Compare VBS Distrib., Inc. v. Nutrivita Labs., Inc., No. SACV 16-01553-CJCDFMX, 2017 WL 2404919, at *5 (C.D. Cal. Jan. 19, 2017) (insufficient showing where plaintiff "offered only the self-serving

[402 F.Supp.3d 897]

declaration of its CEO"), rev'd on other grounds, 697 F. App'x 543 (9th Cir. 2017); with SolarEdge Techs. Inc. v. Enphase Energy, Inc., No. 17-CV-04047-YGR, 2017 WL 3453378, at *6 (N.D. Cal. Aug. 11, 2017) ("bare, threshold showing" of irreparable harm where plaintiff offered sworn statement of senior executive but no data to support her conclusions). Moreover, as KBI points out, the evidence in the record reflects that KHB's sales have nearly tripled in the time that KHB has been recording instances of customer confusion, increasing from 108,000 units in 2016 to 294,000 units in 2018. See KBI Opp'n to KHB MPI at 8 (citing Palmer Decl. ¶ 11).15

KHB's evidence of irreparable harm is therefore not substantial.

b. Delay

A further, significant problem with KHB's claim of irreparable harm is that KHB waited as long as it did to seek a preliminary injunction. "[L]ong delay before seeking a preliminary injunction implies a lack of urgency and irreparable harm." Oakland Tribune, Inc. v. Chronicle Pub. Co., 762 F.2d 1374, 1377 (9th Cir. 1985). In Oakland Tribune, the Ninth Circuit held that "[w]here no new harm is imminent, and where no compelling reason is apparent, the district court was not required to issue a preliminary injunction against a practice which has continued unchallenged for several years." Id. "[A]lthough a particular period of delay may not rise to the level of laches and thereby bar a permanent injunction, it may still indicate an absence of the kind of irreparable harm required to support a preliminary injunction." Ctr. for Food Safety v. Schafer, No. C 08-00484 JSW, 2010 WL 964017, at *4 (N.D. Cal. Mar. 16, 2010) (quoting Quince Orchard Valley Citizens Ass'n, Inc. v. Hodel, 872 F.2d 75, 80 (4th Cir. 1989) ). The Ninth Circuit has explained that "delay is but a single factor to consider in evaluating irreparable injury" and that "courts are ‘loath to withhold relief solely on that ground.’ " Arc of Cal. v. Douglas, 757 F.3d 975, 990 (9th Cir. 2014) (quoting Lydo Enters., Inc. v. City of Las Vegas, 745 F.2d 1211, 1214 (9th Cir. 1984)). In addition, where there are "ongoing, worsening injuries," delay is not terribly probative. Id.see also Garcia v. Google, Inc., 766 F.3d 929, 938 (9th Cir. 2014), on reh'g en banc, 786 F.3d 733 (9th Cir. 2015) (plaintiff not dilatory in bringing suit where she "took legal action as soon as ... she began receiving death threats—in other words, as soon as there was a ‘need for speedy action.’ ").

KHB has known about KBI and its use of the KIVA mark since June 2015. Henderson Depo. at 65. June 2015 is also when KHB first consulted with litigation counsel about KBI. Schuman Decl. Ex. 1 at 7 (interrogatory response). But KHB did not send a cease and desist letter to KBI until May 2018, see Henderson Decl. Ex. F, it did not bring suit until September 2018, see generally Compl., and it did not file its motion for a preliminary injunction until March 2019, see generally KHB MPI.

KHB responds that it did not act unreasonably by not bringing suit in June of 2015, because Henderson believed at first that KBI was only selling its KIVA-branded products in San Francisco, and he believed that KBI's products initially used the name "Kiva Confections" rather than "Kiva." KHB MPI at 4–5 (citing Henderson Decl. ¶ 12); KHB Reply re MPI at 3. But asked for the basis of his

[402 F.Supp.3d 898]

belief that KBI only sold its products in San Francisco, Henderson responded "I don't know." Henderson Depo. at 68–69. KBI was in fact selling in all of California as of 2011. See Palmer Decl. ¶ 13, Ex. E. KBI also submits that there has been no change in how often it uses the word "Confections" since June 2015. See Palmer Decl. ¶¶ 15, 18. And KBI asserts that a June 2015 search of its website would have shown the quotation "KIVA™ A Higher Chocolate Experience" on its landing page—without "Confections" following the word "KIVA"—and the exact same product packaging that Henderson now asserts reflects a change. See KBI Opp'n to KHB MPI at 7–8 (citing Palmer Decl. ¶ 16, Ex. F, id. ¶ 17, Ex. G).16

KHB next asserts that it began to receive complaints and questions from customers in late 2016 or early 2017, only then "had reason to re-investigate," and sent a cease and desist letter in May 2018. KHB Reply re MPI at 3; KHB Opp'n to KBI MPI at 5. It then exchanged correspondence with KBI until August 2018, and was, it suggests, lulled into inaction by KBI's counsel's mention of an "amicable resolution" and suggestion that mediation might be "premature." KHB Opp'n to KBI MPI at 6, Johnson Reply Decl. Exs. 1, 2. KHB argues that "Even a slow, steady ‘progressive encroachment’ by the defendant who edges closer and closer to plaintiff might excuse delay." KHB Opp'n to KBI MPI at 5 (citing McCarthy § 31:19). It also notes that "a delay in moving for a preliminary injunction can be excused by ... settlement negotiations." Id. at 6 (quoting McCarthy § 31:32; Warner Bros. Entm't v. Glob. Asylum, Inc., 107 U.S.P.Q.2d 1910, 1927, 2012 WL 6951315, at *21 (C.D. Cal. Dec. 10, 2012) (four month delay applying for TRO excused by investigation and settlement negotiations)).

KHB's reasons for delaying between June 2015 (when it first learned of KBI and first consulted with counsel) and early 2017 (when it began collecting evidence of consumer confusion) are questionable given the available evidence about KBI's sales throughout California and about KBI's packaging. However, even assuming that KHB properly delayed taking action to protect its mark until early 2017, KHB then waited until May of 2018 to send a cease and desist letter. KHB nowhere explains this year and a half delay. And even assuming that it was justifiable to delay between May 2018 (the cease and desist letter) and December 2018 (when, after bringing this suit in September 2018 and participating in a mediation, KHB served the complaint on KBI), it is also not clear why KHB waited from December 2018 to March 2019 to bring this motion.

Although the case law varies as to how much delay is permissible, KHB's delay here was certainly substantial. See, e.g.Polymer Techs., Inc. v. Bridwell, 103 F.3d 970, 976 (Fed. Cir. 1996) (four month delay between beginning of infringing activities and bringing of suit did not rebut presumption of irreparable harm); High Tech Med. Instrumentation, Inc. v. New Image Indus., Inc., 49 F.3d 1551, 1557 (Fed. Cir. 1995) ("Absent a good explanation ... 17 months is a substantial period of delay that militates against the issuance of a preliminary injunction by demonstrating that there is no apparent urgency to the request for injunctive relief");

[402 F.Supp.3d 899]

Alacritech, Inc. v. Microsoft Corp., No. 04-03284 JSW, 2005 WL 850729, at *7 (N.D. Cal. Apr. 12, 2005) (delay of a little over three months between filing lawsuit and filing motion for preliminary injunction does not rebut presumption of irreparable harm); First Franklin Fin. Corp. v. Franklin First Fin., Ltd., 356 F. Supp. 2d 1048, 1055 (N.D. Cal. 2005) (three month delay "undercuts ... claims of urgency and irreparable harm"); Playboy Enters., Inc. v. Netscape Commc'ns Corp., 55 F. Supp. 2d 1070, 1090 (C.D. Cal. 1999) (five month delay "in seeking injunctive relief further demonstrates the lack of any irreparable harm").

Between the lack of evidence of damage to KHB's good will and to its ability to control its mark, and KHB's delay in pursuing this litigation, KHB has failed to demonstrate that it is facing a likelihood of irreparable harm warranting urgent injunctive relief.

The next step in the preliminary injunction analysis is the balancing of the equities. The Court found that the hardship to the defendant in granting an injunction and forcing it to undergo a rebranding of a name it had built up for about nine years would be much greater than the hardship to the plaintiff in denying an injunction. Thus the balance of equities favored denying the injunction. Additionally, while the public interest would be served by granting the injunction and preventing customer confusion, the Court found that the risk of consumer confusion was not significant in this case. Ultimately, the Court denied the injunction, noting that the plaintiff failed to demonstrate that it was likely to succeed on the merits or to demonstrate irreparable harm, and the balance of equities favored denial (at 899-900): 

The third and fourth requirements for injunctive relief are that the balance of equities tips in the plaintiff's favor, and that an injunction is in the public interest. See Rodriguez, 715 F.3d at 1133.

a. Balance of Hardships

As to balance of hardships, KHB argues that if no injunction issues, it will continue to experience customer confusion and damage to its good will, but if an injunction issues, KBI "will only be inconvenienced by having to undertake the effort and expense to re-brand." KHB MPI at 16–17. It notes that KBI has had actual notice of KHB since August 2017, and that rather than re-brand, it has denied wrongdoing and continued to expand. Id. at 17. And it argues that KBI brought "upon itself" any hardship that would come with an injunction. Id. (citing McCarthy § 30:51 ).

This is not a case where an infringing defendant has intentionally usurped another's mark. Rather, KBI and its predecessor company, Indica, have been using the KIVA mark since 2010, before KHB first used the mark on a food product in February 2013. See Henderson Decl. ¶¶ 7, 8; Palmer Decl. ¶¶ 6, 8. Though KBI continued to grow its business and use the KIVA mark over the years, even after receiving a cease-and-desist letter from KHB in May 2018, it had a nonfrivolous legal defense to KHB's infringement claim in a novel area of the law. So KHB's argument that KBI brought any hardship onto itself is not particularly compelling.

Moreover, KBI asserts that it spent "almost eight years on product development, sales, brand recognition, and geographic expansion before KHB filed this lawsuit." KBI Opp'n to KHB MPI at 20; see also McCarthy § 30:51 ("when a plaintiff delays in filing suit in a case closely balanced on the merits, a preliminary injunction may be denied on the basis that the harm to the defendant increases with the passage of time."). KBI also submits that the cost for it to rebrand would exceed $3 million. See KBI Opp'n to KHB MPI at 20 (citing Grablick Decl. (dkt. 24-2) ¶¶ 6–8). The hardship to KBI in granting an injunction and forcing it to undergo a massive rebranding of a name it has built up for about nine years would therefore be much greater than the hardship to KHB in denying an injunction and thereby maintaining the status quo.

b. Public Interest

As to public interest, "[p]reventing consumer confusion serves the public interest." Stark v. Diageo Chateau & Estate Wines Co., 907 F. Supp. 2d 1042, 1067 (N.D. Cal. 2012). There is some risk of confusion here—and the customer confusion log is some evidence of existing confusion—but, as discussed above, the Court is not persuaded that the risk is significant. KHB's additional claim to the public interest, that an injunction would "protect[ ] the

[402 F.Supp.3d 900]

public from purchasing and using marijuana infused food products, when they intend to purchase and use GMO free, pure, healthy food products sourced from eco-friendly farmers," is nonsensical, and actually underscores the differences in the products. See KHB MPI at 18. KBI's products are only available at licensed dispensaries and mobile delivery services; there is no evidence that any reseller sells both KHB and KBI products. See KBI Opp'n to KHB MPI at 20–21 (citing Henderson Depo. at 14–15; Cal. Bus. & Prof. Code § 26140(a)(1) and (c)(1), 16 C.C.R. § 5407 ). It is hard to imagine a customer wanting to order some Omega 3 Fish Oil from KHB and ending up with—and mistakenly ingesting—a cannabis-infused confection by mistake. The public interest factor therefore favors KHB, though not as strongly as it suggests.

In conclusion then, because KHB has not demonstrated that it is likely to succeed on the merits, because KHB has failed to demonstrate irreparable harm, and because while the public interest favors KHB, the balance of the hardships does not, the Court DENIES KHB's MPI.

In the unreported decision of Tapatio Foods, LLC v. Ponce, 2018 U.S. Dist. LEXIS 63856, 2018 WL 1801890 (C.D. Cal. April 16, 2018), the plaintiff, Tapatio Foods, sought a default judgment against the defendants for willful trademark infringement under federal law, unfair competition under both federal and California law, and dilution by tarnishment under federal law. The plaintiff was in the business of making, selling, and distributing hot sauce and had established significant name recognition and goodwill among consumers. The defendant started manufacturing, selling, advertising, and distributing their own hot sauce infused with cannabis and containing THC under the name "Trapatio." The defendant's hot sauce label used a font and image that was similar to the font and image used in the plaintiff's trademarks (at 2-4): 

Tapatio is a California limited liability company with its principal place of business in Vernon, California. (Complaint ¶ 1). Tapatio is in the business of making, selling, and distributing hot sauce. (Id. ¶ 14). The United States Patent and Trademark Office ("USPTO") has issued to Tapatio at least 3 trademark registrations covering their name, seasonings, and other products (collectively, the "Tapatio Marks"). (Id. ¶ 9-12). Tapatio has expended significant time, effort, and money marketing, advertising, and promoting the Tapatio Marks throughout the United States. (Id. ¶ 14-17). Through these efforts, Tapatio has [*3] established significant name recognition and goodwill among consumers. (Id.).

Below is an image of the design for one of the Tapatio Marks:

[image not carried over]

(Id. ¶ 12).

Defendants are California residents. (Id. ¶ 2-4). Defendants started manufacturing, selling, advertising, and distributing their own hot sauce and other related products bearing confusingly similar marks to the Tapatio Marks. (Id. ¶ 18). Defendants' hot sauce bears the label "Trapatio." (Id. ¶ 21). The font that Defendants use for their hot sauce labels is also very similar to the font use in the Tapatio Marks. (Id. ¶ 24). The images featured on Defendants' hot sauce labels are also confusingly similar to the images in the Tapatio's Marks. (Id. ¶ 26).

Below is an image of the label that Defendants affix to their products:

[image not carried over]

(Id. ¶ 18).

As suggested on the label, Defendants' hot sauce is infused with cannabis and contains THC. (Id. ¶ 32). Given that THC is a Schedule 1 drug under federal law, Tapatio claims that Defendants tarnish Tapatio's reputation by using logos, names, and lettering that is confusingly similar to that used in the Tapatio Marks. (Id. ¶¶ 32-40). Defendants' actions are likely cause consumers to mistakenly believe that there is some [*4] affiliation between Tapatio and Defendants' hot sauce. (Id.). Defendants have interfered with Tapatio's ability to ensure the quality of its products and consumers' experience, and have harmed Tapatio's goodwill among consumers. (Id.).

Tapatio alleges that Mendizabal advertises and sells the "Trapatio" sauce on social media platforms, that Huerta is one of the distributors, and that Ponce applied to trademark the "Trapatio" mark in July 2017. (Id. ¶¶ 30-37).

Tapatio asserts four claims against the Defendants: (1) willful trademark infringement, 15 U.S.C. § 1114; (2) unfair competition under the Lanham Act15 U.S.C. § 1125; (3) violation of California's Unfair Competition Law ("UCL"), Cal. Civ. Code § 17200; and (4) dilution by tarnishment under the Lanham Act, 15 U.S.C §1125(c)(2)(C)). (Id. ¶¶ 41-61).

The Court found that the plaintiff stated a viable trademark infringement claim and was entitled to injunctive relief. The plaintiff demonstrated that absent entry of a permanent injunction, it was possible that the defendant or her affiliates would continue to attempt to sell infringing products and needlessly expose the plaintiff to the risk of continuing irreparable harm. Thus, the Court granted the plaintiff's request for a permanent injunction (at 6-9): 

The choice as to whether a default judgment should be entered is at the sole discretion of the trial court. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). The Ninth Circuit has determined that a court should consider seven discretionary factors before rendering a decision on motion for default judgment. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).

The seven factors are: (1) the possibility of prejudice to the plaintiff, (2) the merits of the plaintiff's substantive claim, (3) the sufficiency of the Complaint, (4) the sum of money at stake in the action, (5) the possibility of a dispute concerning material facts, (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring a decision on the merits. Id.

If the Court determines that default judgment is appropriate, it may consider extrinsic evidence or conduct an evidentiary hearing in determining the amount of damages. Fed. R. Civ. P. 55(b)(2).

The Court determines that, with the exception of the strong policy favoring a decision on the merits, which is not dispositive, the Eitel factors weigh in favor of granting [*7] the Motion. By way of example, the Court specifically ordered Ponce to answer the Complaint by a date certain. Her failure to do so demonstrates a willful refusal to contest this action, completely satisfying factor (6) and greatly lessens any concerns about the lack of a decision on the merits.

In light of the fact that Tapatio has stated a viable trademark infringement claim under 15 U.S.C. § 1114, Tapatio is entitled to the injunctive relief it seeks, as discussed below. The Court thus has no occasion to reach the merits of Tapatio's trademark infringement claim under 15 U.S.C. § 1125 or its UCL claim.

C. Remedies

Tapatio requests entry of a permanent injunction. "Under the Lanham Act, 'the district court has the power to grant injunctions according to principles of equity and upon such terms as the court may deem reasonable, to prevent the violation of any right of the trademark owner.'" Wecosign, Inc. v. IFG Holdings, Inc., 845 F. Supp. 2d 1072, 1083 (C.D. Cal. 2012) (quoting Reno Air Racing Ass'n v. McCord, 452 F.3d 1126, 1137 (9th Cir. 2006)). Indeed, "[i]njunctive relief is the remedy of choice for trademark and unfair competition cases, since there is no adequate remedy at law for the injury caused by a defendant's continuing infringement." Century 21 Real Estate Corp. v. Sandlin, 846 F.2d 1175, 1180 (9th Cir. 1988).

Tapatio requests entry of a permanent injunction requiring Ponce to:

(1) Permanently cease using and refrain from adopting [*8] for any product or service, or in any marketing material:

(a) any trademarks containing the words Tapatio, Trapatio, or any marks confusingly similar to Tapatio;

(b) the Trapatio Salsa Picante Mark and Design Mark;

(c) the Trapatio Mark; or

(d) any trademarks that bear an image of a Charro (meaning a traditional horseman from Mexico);

(2) Recall and destroy any of her marketing material, letterhead, business cards, signs, banners, clothing, or other media whether physical or digital bearing the trademarks identified above;

(3) Change any username, under her control, for all social media and email accounts to one that does not contain the phrase "Trapatio" and/or "Tapatio" or ay marks confusingly similar to Tapatio;

(4) Refrain from telling any customer, vendor, distributor or other person or business that she is in any way related to or affiliated with Tapatio.

Tapatio has demonstrated that, absent entry of a permanent injunction, it is possible that Ponce or her affiliates will continue to attempt to sell infringing products. "Failure to grant the injunction would needlessly expose [Tapatio] to the risk of continuing irreparable harm." Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 502 (C.D. Cal. 2003). The Court finds that the above terms are reasonable. [*9] 

Accordingly, Tapatio's request for entry of a permanent injunction is GRANTED.

In the unreported decision of Ferrara Candy Co. v. Tops Cannabis, 2021 U.S. Dist. LEXIS 104794, 2021 WL 2134156 (C.D. Cal. May 4, 2021), the United States District Court for the Central District of California entered a judgment in accordance with the parties' stipulation for entry of judgment and permanent injunction. The defendant marketed, sold, distributed, and advertised THC-infused products bearing imitations of the NERDS Marks called "Medicated Nerds Rope." The stipulated judgment set out that this was trademark infringement in violation of federal law, unfair competition in violation of federal and California law, and dilution in violation of federal and California law: 

7. Ferrara filed its First Amended Complaint on January 29, 2021, alleging, inter alia, claims for trademark infringement, unfair competition and dilution under federal and California state law based on Tops' unauthorized marketing, sale, distribution, and advertising of THC-infused products bearing imitations of the NERDS Marks called "Medicated Nerds Rope."

8. The manufacture, marketing, sale, distribution and advertising of Medicated Nerds Rope constitutes:

a. trademark infringement in violation of Section 32 of the Lanham Act, 15 U.S.C. § 1114;

b. unfair competition in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) and California common law;

c. dilution in violation of Section 43(c) of the Lanham Act, § 1125(c) and California Business and Professions Code §§ 14330-14335; and unfair competition in violation of California Business and Professions Code §§ 17200 et seq.

9. Therefore, the Court finds that injunctive relief is appropriate.

The parties agreed to a permanent injunction to stop the defendant from manufacturing, marketing, selling, advertising, and distributing Medicated Nerds Rope or any other unauthorized products bearing or advertised under the NERDS Marks. Additionally, the stipulated judgment set out that the defendant would pay to the plaintiff any profits derived from their trademark infringement, would destroy any remaining Medicated Nerds Rope in their possession, and send a notice to any existing customers or vendors that dealing in, selling, marketing or distributing Medicated Nerds Rope was unlawful (at 3-5): 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED, with the consent of the Plaintiff Ferrara and the Defendants Tops and Cristelle that:

a) Tops, its agents, corporate and entity affiliates related through common ownership or control, servants, employees, agents, attorneys, heirs, executors, administrators, successors and assigns, and all persons [*4] or entities acting in concert or participation with them or any of them, including Hello, are hereby permanently enjoined from:

i) the manufacture, marketing, sale, advertising, and distribution of Medicated Nerds Rope or any other unauthorized products bearing or advertised under the NERDS Marks, and any mark similar to or dilutive of the NERDS Marks; and

ii) engaging in any other conduct that tends to falsely represent, or that is likely to confuse, mislead, or deceive consumers into believing, that Tops or its products or services are sponsored, approved, or licensed by Ferrara, or are in some way connected or affiliated with Ferrara.

b) Tops and all others holding by, through or under it, including Hello, are hereby required, jointly and severally, to:

i) account for and pay over to Ferrara all profits derived from their acts of trademark infringement and unfair competition in accordance with 15 U.S.C. § 1117(a) and California common law after receipt of the cease and desist letter on June 16, 2020;

ii) destroy any remaining Medicated Nerds Rope in their possession, including packaging, and any advertising, marketing, or promotional materials that include unauthorized uses of the NERDS Marks; and

iii) [*5] send a notice to any existing customers or vendors that dealing in, selling, marketing or distributing Medicated Nerds Rope is unlawful.

c) This Court shall retain jurisdiction over this matter for the purpose of enforcing this Judgment.

d) The action against Cristelle is dismissed without prejudice.

e) Each party shall bear its own costs and attorneys' fees.

In the unreported Ninth Circuit decision Lochirco Fruit & Produce Co. v. Tarukino Holdings, Inc., C18-763-RAJ (W.D. Wash. 2019), the United States District Court for the Western District of Washington found that the plaintiffs failed to demonstrate a likelihood of success on the merits on their trademark infringement and dilution claims, but did establish a likelihood of success on the merits on their cybersquatting claim. The plaintiff sold apples and apple products under the Happy Apple Mark and the defendants sold cannabis-containing beverages under the name Happy Apple. The marks used by the parties did not look similar, the products were sold in different distribution chains, and the plaintiff failed to provide evidence of significant consumer confusion or dilution of their trademark. However, the defendant's website domain name was only one letter different from the plaintiff's and the Court found it unlikely that the defendant would not have become aware of the plaintiff's website and product (at 4-8): 

While Plaintiffs have arguably established that the Happy Apple Mark has established a secondary meaning, they fail to show that Defendants' use of the Happy Apple name is likely to confuse consumers. The Ninth Circuit has identified eight factors for determining whether consumers would likely be confused by related goods: "[1] strength of the mark; [2] proximity of the goods; [3] similarity of the marks; [4] evidence of actual confusion; [5] marketing channels used; [6] type of goods and the degree of care

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likely to be exercised by the purchaser; [7] defendant's intent in selecting the mark; and [8] likelihood of expansion of the product lines." Network AutomationIncvAdvanced SysConceptsInc., 638 F.3d 1137, 1145 (9th Cir. 2011). This list is not intended to be exhaustive and is intended to act as an "adaptable proxy for consumer confusion, not a rote checklist." Id.

Despite the use of the name Happy Apple, the marks used by the parties are not, as Plaintiffs contend, identical. While Defendants use apple imagery and references to apples in their product descriptions, their products are very different from Plaintiffs' products. Both parties' products are apple-related but the similarities end there. The Court will note first that the marks used by both parties do not look at all the same. While they both contain the words "happy apple" they look markedly different. The mark used by Plaintiffs uses a different font and includes a cartoon of a caramel apple. The product sold by Defendants includes a picture containing two arrows, an apple, and the words "cannabis infused", similar to a coat of arms.

While both products are sold in the State of Washington, Defendants' products contain cannabis. Under Washington law, cannabis-containing beverages can only be distributed and sold by retail stores licensed and regulated by the Washington State Liquor and Cannabis Board. These retail stores may only sell marijuana, marijuana concentrates, marijuana-infused products, and marijuana paraphernalia. Dkt. # 17 Ex. 1. Defendants' products and Plaintiffs' products are not likely to be sold in close proximity to each other, and it is unlikely that a purchaser would mistakenly enter a retail store selling marijuana or marijuana-related products and confuse a cannabis-containing apple beverage with the fresh apples, apple cider, or caramel apples sold by Plaintiffs. Plaintiffs offer one example as evidence of actual confusion. On two occasions, candidates interviewing for positions at Happy Apple Company searched for information about the company on the internet and finding Defendants' website, assumed that Defendants' products were associated with Happy Apple Company. Dkt. # 10 Ex. K.

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These candidates were not purchasers of either parties' products and their alleged statements are not sufficient to show actual confusion among a significant number of consumers. Therefore, Plaintiffs fail to show a likelihood of success and fail to raise "serious questions" going to the merits of their trademark infringement claim.

[...]

Plaintiffs fail to support their contention that the Happy Apple Mark as used in their products is famous, merely stating that the mark's fame is evidenced by the presence of their products in "high-traffic retailers across the nation." Dkt. # 9 at 11. Plaintiffs provide no evidence regarding the duration, extent, and geographic reach of advertising and publicity of the mark, the volume and geographic extent of their sales or goods, or the extent of the mark's actual recognition. Plaintiffs also fail to show that Defendants' use of the Happy Apple name in the State of Washington dilutes Plaintiffs' mark. Plaintiffs make a conclusory statement that Defendants' use of the Happy Apple

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name diminishes the exclusivity of the mark and tarnishes its reputation by associating it with a "federally controlled substance," but do not sufficiently support this statement with any evidence or factual allegations. Plaintiffs fail to show a likelihood of success on the merits of their trademark dilution claim.

[...]

Defendants have registered and use the domain name: www.happyapple.com. Plaintiffs use the domain name: www.happyapples.com. There is no question that these names are almost identical and confusingly similar. At issue is whether Plaintiffs have shown that Defendants had bad faith intent at the time of the domain name's registration. Defendants represent that they selected the name "Happy Apple" on or about March 1, 2017, and that the domain name, www.happyapple.com, was purchased from GoDaddy.com LLC on or about April 13, 2017. Dkt. # 17 Ex. 1. Defendants represent that they were not aware of Plaintiffs' existence or their products until January 8, 2018, and that this lack of awareness is evidence that there was no bad intent behind the selection of the domain name. Id. Plaintiffs argue that Defendants' failure to respond to Plaintiffs' concerns regarding their use of the Happy Apple Mark, and their rush to register the mark after receiving notice of possible infringement is evidence of bad faith. While such evidence is circumstantial, the Court notes that it appears unlikely that

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Defendants were unaware of Plaintiffs' products. The domain names used by both parties are separated by one letter. It is hard to believe that Defendants would not have stumbled upon Plaintiffs' website when selecting the name of their product when a simple Google search of the name "happy apple" lists Plaintiffs' website in the very first page of results. At the very least, this evidence demonstrates "serious questions" going to the merits of Plaintiffs' cybersquatting claim. As Court need only find likelihood of success on one claim to grant a preliminary injunction, Plaintiffs' remaining claims will not be analyzed at this time. See League of Wilderness Defs./Blue Mountains Biodiversity Project vConnaughton, 752 F.3d 755, 760 (9th Cir. 2014).

The Court denied the plaintiff's request for a preliminary injunction and explained that the plaintiffs failed to show they would suffer irreparable harm if a preliminary injunction was not granted. The plaintiffs did not show a likelihood of confusion or that the defendants' use of the Happy Apple name was actually causing harm to their business reputation or goodwill (at 8): 

The Court will now consider whether Plaintiffs will suffer irreparable harm if injunctive relief is not granted. Plaintiffs' sole argument in support of this factor is that they will suffer loss of their business reputation and damage to their goodwill due to a likelihood of confusion. Plaintiffs argue that Defendants' use of the Happy Apple name associates Plaintiffs' products, which are marketed to children, to marijuana and marijuana-laced products, and that this causes irreparable harm to Plaintiffs' brand and image. As noted above, Plaintiffs fail to show a likelihood of confusion or that Defendants' use of the Happy Apple name is actually causing harm to their business reputation or goodwill. A preliminary injunction is an "extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief." Winter vNatResDefCouncilInc., 555 U.S. 7, 22 (2008). As Plaintiffs make no other convincing argument that they will suffer irreparable harm if a preliminary injunction is not granted, their Motion for Preliminary Injunction is DENIED. Dkt. # 9.

In the unreported decision of Wunderwerks, Inc. v. Dual Beverage Co., 21-cv-04980-SI (N.D. Cal. 2021), the plaintiff manufactured and sold beverages containing cannabis and sued the defendant beverage company seeking a preliminary injunction. The plaintiff contended defendants' use of the mark “W*NDER” would cause consumer confusion relative to the plaintiff's “WUNDER” mark. The Court found that the plaintiff's federally registered mark was likely to be invalid because the plaintiff's products encompassed products illegal under federal law, as they contained cannabis, and thus lawful use in commerce could not be established (at 5-6): 

For the reasons discussed during the November 5, 2021 hearing, the Court agrees with defendants that plaintiff has failed to carry its burden of showing likelihood of success on the merits. These reasons include but are not limited to:

(1) There are serious questions going to the validity of plaintiff's mark due to the fact that it encompasses an illegal product - rendering plaintiff's likelihood of success on the merits of its federal claims unlikely.[6] Marijuana and derived substances, including tetrahydrocannabinols (THC), are designated as Schedule I drugs. 21 U.S.C. § 812(c)(10) and 21 CFR § 1308.11.[7]Excluded from that designation, however, is “any material, compound, mixture, or preparation that falls within the definition of hemp[8] set forth in 7 U.S.C. 1639o).” 21 CFR § 1308.11. During the

6

November 5, 2021 hearing plaintiff admitted its products contain CBD and THC derived from marijuana, not hemp.

In May, 2019, the PTO discussed goods derived from marijuana and hemp in an Examination Guide, stating: “[i]f an applicant's goods are derived from ‘hemp' as defined in the 2018 Farm Bill, the identification of goods must specify that they contain less than 0.3% THC” thus rendering the goods “compliant with federal law, “ and removing a basis for refusal of trademark registration for applications filed on or after December 20, 2018. Examination of Marks for Cannabis and Cannabis-related Goods and Services after Enactment of the 2018 Farm Bill, USPTO Examination Guide 1-19, May 2, 2019.[9]

Based on the evidence presented, the Court finds the “WUNDER” federally registered mark is likely to be invalid because plaintiff's products encompass products illegal under federal law, and thus lawful use in commerce cannot be established.

Authorities:
Kiva Health Brands LLC v. Kiva Brands Inc., 402 F.Supp.3d 877 (N.D. Cal. 2019)
Tapatio Foods, LLC v. Ponce, 2018 U.S. Dist. LEXIS 63856, 2018 WL 1801890 (C.D. Cal. April 16, 2018)
Ferrara Candy Co. v. Tops Cannabis, 2021 U.S. Dist. LEXIS 104794, 2021 WL 2134156 (C.D. Cal. May 4, 2021)
Lochirco Fruit & Produce Co. v. Tarukino Holdings, Inc., C18-763-RAJ (W.D. Wash. 2019)
Wunderwerks, Inc. v. Dual Beverage Co., 21-cv-04980-SI (N.D. Cal. 2021)